Pensions Bill

My Lords, we wholeheartedly support the principle behind the amendment just moved by the noble Lord, Lord Kirkwood, and I agree that the recent report from the Pensions Policy Institute is valuable because it illuminates what we know and what we do not yet fully understand. We on these Benches have warned for some time that the increasing disparity between the pension benefits available in the public sector and those in the private sector is unsustainable. Increasingly, the country reflects a tale of two workforces. The latest official statistics show that employee membership of defined benefit schemes in the private sector continues to fall, with around 1.5 million still in open DB schemes, although the Association of Consulting Actuaries uses a much lower figure of around 900,000. On the other hand, 5.2 million people are in public sector defined benefit schemes which are obviously still open. Not only do these schemes give full DB benefits in retirement, they often have much earlier retirement dates than in the private sector. The result is a huge cost burden which taxpayers have to pick up. Some of the schemes are funded, which is imposing a considerable cost on the services to which those employees are attached, but as the noble Lord, Lord Kirkwood, pointed out, many schemes are unfunded. The noble Lord also told us how difficult it is to get a fix on how much is actually involved, partly because of the delay in the numbers coming out and partly because of the assumptions that are used. If we add together some figures that were available in 2006 and 2007, we believe that the estimate on the Government’s assumptions is around £760 billion. But those figures use the perfectly ludicrous assumption of AA corporate bond rates in the discounting when it is obvious that the only correct rate to use for the state’s liabilities is the risk-free gilt rate. If that rate is used, the Institute of Economic Affairs earlier this year came up with a figure of £1,071 billion, which itself is out of date because the figure will be higher even now. But just that figure represents 73 per cent of GDP. That is what is overhanging our economy, which, as we know, is in a precarious state as it is. If the Government were a private sector company, which of course they are not, the answer to the financial facts would be clear, because we can see what boardrooms have been doing consistently over recent years. They have been closing their defined benefit schemes to new entrants and have been revisiting whether or not future accrual would be modified or possibly even stopped. What has happened in the private sector is plain, and I outlined it earlier when speaking to my conditional indexation amendment. However, the Government live in a completely different world. I understand what the noble Baroness, Lady Turner, said about a negotiation between Ministers and the TUC, but the plain fact is that that negotiation has sold taxpayers down the river. The solution at the end of that negotiation was a minimalist one, and there could not have been less produced. The noble Lord, Lord Kirkwood, gave us the figure of £13 billion over 50 years—around 1 per cent of the total liability on the assumptions I discussed earlier. Indeed, it is interesting to note that when the noble Lord, Lord Turnbull, was with us—he has much expertise in this matter and it is a shame that he is not in his place today—he described all criticism of the deal as entirely justified. Noble Lords on these Benches find it difficult to support amendments that involve public expenditure. I am not sure that a pensions commission to look at public sector pensions would necessarily involve a large amount of public expenditure, and could even be contained within the margins of the DWP’s existing provision, but it is important to know how much it would cost. As I have explained, we believe that there is a big issue here and that any responsible government should address it in the future, if only because there will be anger from taxpayers who have to sustain a level of pensions that they themselves cannot even hope to have. Whether we need a report to make that happen is perhaps a moot point, but the issue is very important and one that must be addressed.